Digi.Com Bhd (Digi) has been a long-time winner in this category, underpinned by its persistent high adjusted weighted return on equity (ROE) of 194.7% over the three-year period. Though numbers collated for the awards show that its three-year adjusted weighted ROE has slipped to 187.6% for the financial year ended Dec 31, 2021 (FY2021) from 192.9% in FY2020 and 215% in FY2019, the ratio remains in enviable triple digits — more than sufficient for Digi to continue being named winner in the ROE category against The Edge BRC Big Cap Companies (companies with RM10 billion to RM40 billion market capitalisation).

The country’s third-largest mobile operator maintained its close to 100% dividend payout for FY2021, with a net dividend per share of 14.9 sen, or a total payout of RM1.16 billion. Its FY2021 net profit of RM1.16 billion declined 4.8% from FY2020 due to higher depreciation charges mainly caused by the 3G network shutdown and a small increase in finance costs.

Year to date, it has declared a 9.1 sen dividend per share even as prosperity tax provision and higher net finance costs caused net profits for the first nine months of FY2022 to slip 15.96% year on year to RM720.67 million from RM857.55 million a year earlier.

Having received clearance from the Securities Commission of Malaysia and the Malaysian Communications and Multimedia Commission (MCMC), Digi’s planned merger with Axiata Group Bhd’s Malaysian cellular arm Celcom Axiata Bhd is expected to be completed by this year. At the time of writing, this was still subject to fulfilment of certain terms and conditions contained in the letter dated Sept 15.

The proposed merger entails Axiata transferring 100% of its stake in Celcom Axiata to Digi for RM17.76 billion, which will be satisfied via a combination of 3.96 billion new Digi shares issued at RM4.06 each and RM1.69 billion in cash. Upon completion, Axiata Group Bhd and Telenor will hold equal ownership of 33.1% each in the newly merged company.

In a recent note on Oct 21, PublicInvest Research said it expects Digi to see a slight earnings per share enhancement of about 2% post-merger.

“Operationally, we do not expect any major impact in the immediate term with management focusing mainly on the integration phase. In the longer run, we believe there are synergies to be reaped in terms of sharing of resources, network optimisation and lower procurement costs due to better scale in purchases.”

In early October, Digi — along with Celcom Axiata, YTL Communications Sdn Bhd and Telekom Malaysia Bhd) — executed share subscription agreements to collectively take up a 65% stake in Digital Nasional Bhd (DNB). This followed Maxis Bhd and U Mobile Sdn Bhd’s withdrawal from taking up equity in DNB, the special-purpose vehicle set up by the government to own and roll out the 5G network nationwide. All six mobile network operators are expected to agree to take up capacity from DNB by year-end, but the take-up for 5G services is not expected to be a significant boost to earnings just yet.

Looking ahead, Digi sees continued robust underlying demand for mobile services in all segments, but said it will persevere in being disciplined on spending, given the macro-economic uncertainties. Considering these two factors, Digi maintained its 2022 guidance of being able to return service revenue to a growth path while keeping capex-to-total revenue ratio around 2021 levels, but expects a low single-digit decline in normalised Ebitda.

Even so, Kenanga Research remains positive on Digi for its superior Ebitda margin at 47% to 48%, which is higher than the industry average of 41%. It reckons that the merger with Celcom Axiata will give rise to a new market leader in the mobile market with a combined market share of 44%.

“Digi is a recovery play with its B2B (business-to-business) segment driven by the reopening of the economy while its prepaid segment is underpinned by the return of foreign workers,” it said in an Oct 21 note.

Since hitting a high of RM4.49 in October 2021, Digi’s shares have seen selling pressure, partly due to the 5G uncertainties and stiff market competition. Closing at RM3.57 on Oct 21, Digi’s market value has been wiped off by one-fifth to RM27.76 billion since early this year.

That said, the consensus target price of RM3.93 compiled by Bloomberg suggests a 10% upside potential at the time of writing.

Digi is 49%-owned by Norwegian Telenor Group, with the other major shareholders being the Employees Provident Fund (14.8%) and AmanahRaya Trustees Berhad-Amanah Saham Bumiputera (7.73%). Digi CEO Albern Murty has been on a temporary leave of absence since end-April due to family health reasons, but is expected to return by the end of the year. Chief marketing officer Praveen Rajan is the acting CEO in his absence.